Why are flight prices going up?

Open any travel app right now and try booking a flight from Mumbai to Dubai. Or Delhi to London. The prices you see are not what they were two weeks ago.

Something changed in early March. And if you are wondering who is to blame, the answer involves a war in the Gulf, a narrow waterway in the Middle East, and a very old argument in India that the aviation industry has been losing for years.

It Starts Far From India

On February 28, 2026, Indian airlines cancelled 1,221 flights. Not because of rain. Not because of a technical fault. Because the airspace over West Asia suddenly became unusable.

The conflict between the US, Israel, and Iran had escalated to a point where flight corridors over the Gulf region were effectively shut down. For Indian carriers, this was not a distant problem. The Middle East is right next door. Flights to Dubai, Riyadh, Abu Dhabi, Bahrain, Kuwait, and large parts of Europe all pass through or near that airspace.

The result was instant. IndiGo, which controls roughly 60% of India's domestic market, had to cancel over 500 flights weekly. Air India saw approximately 40 % of its international capacity disrupted. SpiceJet, already fighting for survival, took a hit of around 32 % of its capacity.

That is not a rounding error. That is a direct attack on revenue.

Then the Fuel Bill Arrived

If the airspace closures were the first punch, the fuel shock was the second.

Aviation Turbine Fuel, or ATF, is the single largest cost item for any Indian airline. It accounts for nearly 40% of an airline's total operating expenses. Not salaries. Not airport fees. Fuel.

Since early March 2026, ATF prices have surged sharply due to supply disruptions linked to the Gulf conflict. Brent crude climbed from around $72 a barrel before the hostilities to over $110, and jet fuel crack spreads more than doubled. For airlines trying to absorb the airspace disruption already hitting their revenues, this was devastating timing.

HSBC ran the numbers. Every $1 per barrel increase in jet fuel prices adds roughly ₹300 crore to IndiGo's annual fuel bill. For SpiceJet, the same $1 rise adds around ₹27.5 crore. A $5 per barrel increase could push IndiGo's annual fuel costs up by approximately ₹1,500 crore, potentially wiping out 19 % of its projected profit before tax for FY27.

And it is not just the number. It is the speed. Jet fuel prices are projected to be more than 40 % higher in April 2026 compared to where they were just weeks before.

Air India Blinks First

On March 10, Air India became the first major Indian carrier to officially respond.

The Tata-owned airline announced a phased fuel surcharge across its entire network, covering both Air India and its budget arm Air India Express. Phase 1 kicks in from March 12. A surcharge of ₹399 will be applied on domestic flights and routes to SAARC countries. Phase 2, effective March 18, will cover medium and long-haul international routes. Phase 3, covering flights to Hong Kong, Japan, and South Korea, is still being worked out.

The airline was direct in its reasoning. Without such surcharges, it said, some flights would be unable to cover operating costs and would have to be cancelled.

As of this writing, IndiGo, SpiceJet, and Akasa Air have not made similar announcements. But industry observers believe that if fuel prices stay elevated, it is a matter of when, not if. IndiGo has previously stated publicly that higher fares are necessary. SpiceJet's management has called for a minimum 10 to 15 % increase in ticket prices for the sector to remain viable.

But Here Is the Part That Should Bother You

The global fuel price shock is real. Nobody disputes that.

But there is a separate, older problem that makes India's situation significantly worse than what airlines in other countries face. And it has nothing to do with the war in the Gulf.

Indian airlines pay substantially more for ATF than their international counterparts. The reason is straightforward: ATF in India is not under the Goods and Services Tax regime. It still attracts central excise duty at 11 %, and on top of that, state governments pile on their own VAT, which varies wildly from 0% to as high as 29% depending on the state.

In metros like Delhi and Mumbai, where the bulk of India's air traffic originates, these levies are at the steeper end of the range. Air India specifically cited high excise duty and VAT in Delhi and Mumbai as amplifying the fuel cost shock beyond what the global crude price alone would explain.

The cascade works like this. When crude oil prices go up globally, ATF prices rise. But because excise duty is applied as a %age of the price rather than a fixed rupee amount, the tax bill goes up proportionally as well. You are paying a higher tax on a higher base. The industry calls this the cascading effect. Airlines cannot claim input tax credit on ATF the way other businesses can under GST. They simply absorb the hit and pass it on.

IndiGo has been asking the government to bring ATF under GST for years. The argument is sensible. Under GST, airlines would be able to claim input tax credits, reducing their effective cost of fuel. The Ministry of Civil Aviation has supported this position more than once.

But it has not happened. The GST Council, which requires state governments to agree, has consistently kept ATF outside the framework. States rely heavily on ATF-related revenues, and none of them are eager to give that up. The 55th GST Council meeting in December 2024 specifically took up the proposal — and rejected it, with state finance ministers unwilling to cede their VAT revenues on ATF. The 56th Council meeting, held in September 2025, did not revisit the question.

So every time there is a global fuel shock, Indian airlines take a double hit. Once from the global price. Once from the tax structure that magnifies it.

What Does This Mean for IndiGo Specifically?

IndiGo is worth examining closely because it is both the most exposed carrier and the one with the strongest balance sheet to absorb the pressure.

The airline had cash reserves of ₹36,945 crore as of December 31, 2025. Rating agency Crisil has maintained its AA-/Positive credit rating. Despite a significant operational disruption in December 2025, which led to the resignation of CEO Pieter Elbers and the return of co-founder Rahul Bhatia as interim chief, IndiGo's financial standing remains relatively solid.

But the numbers are getting uncomfortable. IndiGo's stock dropped as much as 8% intraday on March 9, touching ₹4,050. It is down roughly 18 % over the past month and 20% year to date. JPMorgan has cut its FY26 and FY27 earnings per share estimates for the airline by 13 and 14% respectively, citing higher fuel costs and weaker revenue.

Under a seven-day disruption scenario, HSBC estimates IndiGo's profit before tax could decline by roughly ₹32 crore, about 6% of its Q4 FY26 estimate. Add a $5 per barrel fuel cost increase to that seven-day window and you are looking at another ₹12 crore hit on top.

These are near-term pressures. Most analysts still believe IndiGo's structural position is intact. Of 27 analysts covering the stock as of early March 2026, 22 recommend buying it. The average price target sits around ₹6,065, implying significant upside from current levels, assuming the conflict eventually de-escalates and fuel prices normalise.

But those are assumptions. And assumptions are doing a lot of heavy lifting right now.

SpiceJet Is a Different Story

SpiceJet is not in a position to absorb any of this.

The airline is already operating with a negative price-to-earnings ratio, which means it is losing money. Its market capitalisation is a fraction of IndiGo's. HSBC has a Reduce rating on the stock. Creditors have already invoked pledged shares, pointing to persistent liquidity concerns.

The same $5 per barrel fuel increase that dents IndiGo's profits would be far more severe for SpiceJet's fragile economics. And unlike IndiGo, SpiceJet does not have the cash reserves to buy time.

The sector was already projected to post net losses of ₹170 to 180 billion for FY2025-26 before all of this. The fuel shock and airspace disruptions have made that outlook significantly harder to improve.

The Structural Trap

Here is the uncomfortable truth about Indian aviation.

The industry carries enormous aspirational weight. India is adding airports. New aircraft orders are being placed. The government talks about making air travel accessible to the common man. And by passenger numbers, the growth story has been real.

But the structural economics are broken.

Airlines pay among the highest ATF prices in the world relative to global benchmarks. They cannot hedge fuel risk the way foreign carriers can, because they are not permitted to directly import ATF and therefore cannot access international commodity hedging. They are dependent on three government-owned oil marketing companies for supply. And they operate under a tax regime that turns every global oil shock into an amplified domestic one.

When things are going well, the growth masks all of this. When something like a Middle East conflict happens, the underlying fragility becomes impossible to ignore.

What You Should Expect

If you are planning to fly in the coming weeks, here is the practical picture.

Fares on domestic routes are going up. Air India has formalized it. Others are likely to follow. On international routes, particularly to destinations in the Middle East, West Asia, and Europe, some routes may still be disrupted or operating on longer rerouted paths, which adds cost.

If you already have a ticket booked, you are generally protected from the new surcharges. Bookings made before March 12 will not attract Air India's new charges unless you change your itinerary.

The longer this situation persists, the more it gets baked into base fares rather than surcharges. Airlines cannot absorb a 40 % fuel cost increase indefinitely.

Sources: Business Standard, Business Today, HSBC Global Research, Air India Newsroom, The Week, Skift Research